OFSI has published details of two monetary penalties totalling £20.47m on Standard Chartered Bank for breaches of sanctions against Ukraine, following a voluntary disclosure by the bank.
OFSI levied two separate fines, one under the relevant EU Regulation (£7.6m) and one under the UK Ukraine (EU Financial Sanctions)(No 3) Regulations 2014 (£12.7m). The breaches related to the provisions that ban any EU person from making loans or credit, or being part of an arrangement to make loans or credit, available to sanctioned entities where the loan or credit has maturity of over 30 days. Originally, OFSI had proposed fines of £11.9m and £19.6m respectively, but these were reduced on a review by the Economic Secretary to the Treasury.
The restrictions took effect in 2014. The bank made a series of 102 loans between April 2015 and January 2018 to Denizbank A.S., which at the time was almost wholly owned by Sberbank, which was subject to restrictive measures. As a result, the restrictions also applied to Denizbank as its majority-held subsidiary.
One exemption to the general ban on loans and credit covers those with the specific and documented objective of financing the import or export of non-prohibited goods between the EU and a third country. The exemption is aimed at protecting legitimate EU trade and so requires that the trades concern goods coming into or out of the EU.
On examination, OFSI found that around 70 of the relevant loans did not have the necessary EU nexus. The loans totalled around £266m, of which 21 loans, valued at around £97m, were made after 7 April 2017, the date on which OFSI acquired powers to fine under s146 of the Policing and Crime Act 2017. OFSI’s penalty was based on these loans.
OFSI’s investigation determined that the bank had initially ceased all trade finance business with Denizbank when it became a sanctioned entity, but had gradually introduced dispensations for business it believed to be exempt. But OFSI found the dispensations were not appropriately put in place and as a result their operation allowed loans that were not covered by an exemption to be made – and these failings lasted some time.
The Bank had made a voluntary disclosure, carried out a detailed internal investigation and provided a detailed report to OFSI and, as a result, OFSI reduced the penalties for the offence, which is considered “the most serious”, by 30%.
The Bank exercised its right to have the penalties reviewed by a Minister, who agreed the breach was “most serious” and upheld the decision to impose fines. But the Minister found that the fact the bank had not intended to breach the restrictions, and the measures it took once it discovered the breach, should have been given more weight in the penalty consideration, and as a result reduced both penalties. The bank paid the reduced penalty without further appeal.